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Convex dynamic programming with (bounded) recursive utility

Gaetano Bloise and Yiannis Vailakis

Journal of Economic Theory, 2018, vol. 173, issue C, 118-141

Abstract: We consider convex dynamic programs with general (bounded) recursive utilities. The Contraction Mapping Theorem fails when the utility aggregator does not obey any discounting property. This failure occurs even with traditional aggregators and certainty equivalent specifications. However, the Bellman operator admits a unique fixed point when an interior policy is feasible. This happens because utility values are unique at interior consumption plans and, when an interior perturbation is feasible, drops in utility values can be avoided.

Keywords: Recursive utility; Thompson aggregator; Bellman operator (search for similar items in EconPapers)
JEL-codes: C61 D81 D91 (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:173:y:2018:i:c:p:118-141

DOI: 10.1016/j.jet.2017.10.008

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